Frederick MD CPA · Tax Law Update
Signed into law July 4, 2025 · Effective for tax years 2025 and 2026
The biggest federal tax overhaul since 2017 — and Maryland businesses have more to gain than most. Here's what changed, what it means for your Maryland return, and what you should do before year end.
The One Big Beautiful Bill Act (OBBBA) was signed on July 4, 2025, making permanent most of the 2017 Tax Cuts and Jobs Act provisions while adding significant new deductions and benefits. For Maryland taxpayers, the law interacts with state-specific rules — the PTE election, local income taxes, and Maryland's conformity to federal depreciation — in ways that require careful planning. Most national tax software won't catch the Maryland-specific opportunities. We will.
The state and local tax (SALT) deduction cap was one of the most painful provisions of the 2017 TCJA for Maryland residents. Under the old law, you could only deduct $10,000 in state and local taxes on your federal return — regardless of how much you actually paid. For Maryland taxpayers, who face some of the highest combined state and local tax rates in the country, this cap cost thousands of dollars per year.
The OBBBA raises the SALT cap to $40,000 starting in 2025, with a phaseout beginning at $500,000 of income. The increased cap is set to sunset after 2029.
SALT deduction cap: $10,000 → $40,000 (2025–2029). Phases out for income above $500,000. For Maryland homeowners with significant property taxes and state income taxes, this could mean $5,000–$20,000+ more in federal deductions.
Maryland has some of the highest combined state and local tax rates in the US. Frederick County residents pay Maryland state income tax (up to 5.75%), Frederick County local income tax (3.0%), and property taxes — often well above $10,000 combined. The new $40,000 cap means most Maryland homeowners can now deduct their full state and local tax burden again. However, this interacts with the Maryland PTE election — high-income S-Corp owners in Maryland may now benefit from both the higher SALT cap on their personal return and the entity-level PTE deduction. See our Maryland Tax Guide and S-Corp vs. LLC analysis for details.
Qualified tip income is now deductible from federal taxable income for employees and self-employed individuals who work in occupations that customarily and regularly receive tips. The deduction applies to voluntary cash or charged tips reported on a W-2, 1099, or other qualifying statement.
Employees and self-employed individuals in tip-based occupations can deduct qualified tip income from federal taxable income. Effective 2025 through 2028. The IRS published a list of qualifying occupations based on those that customarily received tips as of December 31, 2024.
Frederick County has a significant restaurant and hospitality industry. Servers, bartenders, valets, salon workers, and other tip-earning employees benefit directly. However, Maryland has not yet conformed to this federal deduction — tip income may still be taxable on your Maryland state return. We are tracking Maryland's conformity position and will advise clients accordingly. Restaurant owners also need to update their payroll and reporting systems to track and separate qualifying tip income.
The overtime premium — the extra pay received above the regular rate for hours worked over 40 per week — is now deductible from federal taxable income for eligible employees. This applies to the overtime premium portion of pay, not the entire overtime paycheck.
The overtime premium (the extra 50% paid for hours above 40/week under FLSA) is deductible from federal taxable income. Effective 2025 through 2028. Applies to employees paid hourly overtime — not salaried employees or business owners taking distributions.
Tradespeople, contractors, healthcare workers, and manufacturing employees in Frederick County who regularly work overtime will see meaningful tax savings. As with tips, Maryland state conformity is not guaranteed — overtime deductions may not reduce your Maryland taxable income. Employers will need to separately track and report overtime premium pay on W-2s, which may require payroll system updates. Our small business bookkeeping team can help set this up correctly.
Taxpayers age 65 and older can now claim an additional $6,000 deduction from federal taxable income. This is on top of the existing additional standard deduction for seniors and is available whether you itemize or take the standard deduction.
New $6,000 above-the-line deduction for taxpayers 65 and older. Phases out for single filers above $75,000 AGI and joint filers above $150,000 AGI. Effective 2025 through 2028. Applies in addition to the existing senior additional standard deduction.
Frederick County has a substantial and growing retiree population. For seniors within the income thresholds, this deduction combined with Maryland's existing pension exclusion and Social Security exemption can significantly reduce total tax liability. If you or a family member is 65+ and still filing, this is worth a specific review. Maryland conforms to the federal deduction, so state tax savings apply as well.
Under the TCJA, 100% bonus depreciation was phasing down — dropping to 40% in 2025 and scheduled to end entirely by 2027. The OBBBA permanently restores 100% bonus depreciation for qualified property acquired and placed in service on or after January 19, 2025.
This means businesses can deduct the full cost of qualifying equipment, machinery, vehicles, computers, and other tangible personal property in the year it is placed in service — rather than depreciating it over years.
100% bonus depreciation permanently restored for qualified property placed in service after January 19, 2025. Applies to tangible MACRS property with a class life of 20 years or less, computer software, and qualified improvement property. Used property also qualifies if it meets acquisition requirements.
This is transformative for Frederick County contractors, farms, landscapers, auto shops, and any capital-intensive business. A contractor who buys $150,000 in equipment in 2025 can deduct the full amount this year instead of spreading it over 5–7 years. Maryland generally conforms to federal bonus depreciation, so state tax savings apply too. If you're planning major equipment purchases, the timing matters — assets placed in service before December 31, 2025 qualify for the 2025 tax year. Contact our tax planning team before year end.
Section 179 allows businesses to immediately deduct the cost of qualifying property rather than depreciating it. The OBBBA raised the annual Section 179 deduction limit from $1 million to $2.5 million, with the phaseout threshold increased from $2.5 million to $4 million.
For most small businesses in Frederick County, Section 179 and bonus depreciation work together — and in many cases, 100% bonus depreciation will cover what Section 179 misses. But Section 179 has some advantages, including the ability to choose which assets to expense and how much, making it a useful planning tool.
Section 179 limit: $1M → $2.5M. Phaseout threshold: $2.5M → $4M. Permanent change effective for property placed in service after December 31, 2024. Vehicles over 6,000 lbs gross vehicle weight (pickups, cargo vans, heavy SUVs) may qualify for significant first-year deductions.
Business vehicle purchases are especially relevant here. A pickup truck or cargo van used for business and weighing over 6,000 lbs can qualify for significant first-year expensing — and many Frederick County contractors, landscapers, and tradespeople buy exactly these vehicles. Maryland conforms to Section 179 expensing, so the deduction reduces both your federal and Maryland taxable income. See our guide on deductions contractors always miss.
The 20% Qualified Business Income (QBI) deduction — one of the most valuable tax benefits for pass-through business owners — was set to expire at the end of 2025. The OBBBA makes it permanent and adds a $400 minimum deduction for qualifying taxpayers.
The QBI deduction allows owners of sole proprietorships, S-Corps, partnerships, and LLCs to deduct up to 20% of their qualified business income from federal taxable income. For a business owner with $200,000 in QBI, that's a $40,000 deduction.
Section 199A 20% QBI deduction made permanent. New $400 minimum deduction added. Income thresholds for W-2 wage limitations are adjusted. This removes the planning uncertainty that had business owners worried about 2026 and beyond.
The QBI deduction is a federal deduction only — Maryland does not conform to Section 199A. Your Maryland taxable income is not reduced by the QBI deduction. This is one of the key reasons why the Maryland PTE election remains valuable even with the higher SALT cap — it creates a deduction that reduces both federal and Maryland taxable income. Our S-Corp vs. LLC analysis walks through how these provisions work together for Maryland business owners.
For the first time since 1986, individuals can deduct interest paid on personal auto loans — up to $10,000 per year. This applies to loans for new vehicles assembled in the United States, used for personal purposes. The deduction phases out for higher-income taxpayers.
New above-the-line deduction for interest on new personal vehicle loans, up to $10,000 annually. Vehicle must be new and assembled in the US. Effective 2025 through 2028. Subject to income-based phaseouts. Does not apply to business vehicles (those are handled through depreciation).
Anyone who purchased a new US-assembled vehicle in 2025 with a loan may be able to deduct the interest on their federal return. Maryland conformity to this provision is not yet confirmed — check back or call our office for the latest. If you're considering a vehicle purchase before year end, this deduction is worth factoring into the decision alongside Maryland's vehicle excise tax.
The Child Tax Credit is increased from $2,000 to $2,200 per qualifying child under age 17 for tax years 2025 and 2026, with expanded refundability provisions. The credit begins to phase out at $400,000 for married filing jointly and $200,000 for other filers.
Child Tax Credit: $2,000 → $2,200 per child (2025–2026). Refundable portion expanded. Phase-out thresholds maintained at TCJA levels. The TCJA's elimination of personal exemptions remains in effect.
Maryland has its own Child Tax Credit for lower-income families, which is separate from the federal credit. For Frederick County families with children, the combination of the increased federal credit, the higher SALT cap, and the senior deduction (if applicable) could significantly reduce total tax liability in 2025 and 2026. Families who previously couldn't itemize due to the SALT cap may now benefit from itemizing again.
The federal estate and gift tax exemption — which was $13.99 million per person in 2025 — is increased to $15 million per person beginning in 2026, indexed for inflation going forward. For married couples, the combined exemption is $30 million. This makes permanent the higher exemption that was set to expire at the end of 2025.
Federal estate & gift tax exemption: $13.99M (2025) → $15M (2026+), indexed for inflation. Permanent change. The annual gift tax exclusion continues at $19,000 per recipient for 2025, adjusted for inflation annually.
Maryland has its own estate tax with a much lower exemption — currently $5 million per person, with no portability between spouses. The gap between the federal and Maryland exemptions creates significant planning opportunities and traps for Frederick County families with estates between $5 million and $15 million. Those estates owe nothing federally but may owe Maryland estate tax. Our team handles estate and trust tax planning for Maryland families navigating exactly this gap.
| Provision | Change | Effective | Type |
|---|---|---|---|
| SALT Deduction Cap | $10,000 → $40,000 (phaseout above $500K income) | 2025–2029 | Temporary |
| No Tax on Tips | Qualified tip income deductible from federal taxable income | 2025–2028 | Temporary |
| No Tax on Overtime | Overtime premium pay deductible from federal taxable income | 2025–2028 | Temporary |
| Senior Bonus Deduction | $6,000 extra deduction for taxpayers 65+ (phaseout above $75K/$150K) | 2025–2028 | Temporary |
| Child Tax Credit | $2,000 → $2,200 per child | 2025–2026 | Temporary |
| Auto Loan Interest | Up to $10,000 deduction for new US-assembled vehicle loans | 2025–2028 | Temporary |
| Standard Deduction | TCJA amounts made permanent ($15,750 single / $31,500 joint in 2025) | 2025+ | Permanent |
| Individual Tax Rates | TCJA rates (10%–37%) made permanent | 2025+ | Permanent |
| 100% Bonus Depreciation | Restored permanently for property placed in service after Jan 19, 2025 | Jan 19, 2025+ | Permanent |
| Section 179 Limit | $1M → $2.5M (phaseout begins at $4M) | 2025+ | Permanent |
| QBI Deduction (199A) | 20% deduction made permanent; $400 minimum added | 2025+ | Permanent |
| AMT Exemption | Higher TCJA exemptions and phaseout thresholds made permanent | 2026+ | Permanent |
| Estate & Gift Exemption | $13.99M → $15M per person, indexed for inflation | 2026+ | Permanent |
More Maryland-specific guidance from our Frederick CPA team.
The new law creates real opportunities — but only if you plan for them. We're reviewing every client's situation in light of these changes. Let's talk about yours.